Jo Paisley
Co-President, Global Association of Risk Professionals Risk Institute
Maxine Nelson
Senior Vice President, Global Association of Risk Professionals Risk Institute
Banks and other financial institutions are intensifying their focus on climate risk management according to a new global survey conducted by the Global Association of Risk Professionals (GARP).
GARP found that 90% of firms have board-level governance of climate-related risks and opportunities, up from 81% in 2019, but only 30% feel their firm’s strategies are resilient against climate change beyond five years.
GARP conducted its second annual Global Benchmarking Survey, featuring participation from 71 leading financial institutions around the world – almost triple the number in 2019 – including banks, asset managers, insurers, and other firms, with a total market capitalisation of $3.8 trillion.
The survey found that several barriers and challenges exist to addressing climate risk within financial services. In the short term, the biggest concern for most firms is the lack of reliable models for climate risk, followed by regulatory uncertainty, as regulators have begun to set formal expectations for firms’ practices in this area.
Firms are evolving their climate risk management capabilities as they are concerned about the long-term resilience of their business strategies to climate change
Jo Paisley
Scenario analysis is an important and valuable tool firms can utilise in developing climate-change strategies, but only a small fraction (14%) of the firms surveyed are using scenario analysis regularly, and of those who have used it at all, only 54% have acted based on the results of the analysis.
“Banks and other financial institutions are recognising the potential impact of climate change on their balance sheets and operations, which will lead to both risks and opportunities,” said Jo Paisley, Co-President of the GARP Risk Institute. “Firms are evolving their climate risk management capabilities as they are concerned about the long-term resilience of their business strategies to climate change.”
Other key findings include:
- Climate risk is widely seen as improperly priced.
- Most (93%) firms do not have a dedicated team for managing climate risk.
- Firms recognise that there are opportunities arising from climate change and are modifying product lines.
As with last year, the 2020 survey focused on key themes of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD), with an enhanced maturity model that scored firms’ climate risk capabilities across six dimensions:
- Governance
- Strategy
- Risk management
- Use of metrics, targets, and limits
- The use of scenario analysis
- Climate risk disclosures